Effective Cash Flow for Businesses

Five means of improving cash flow and long term profitability for are:

1. Monitor the level of income that is generated per employee and review those who are not achieving a minimum target each month. Employees are costly and need to earn their keep and so it is important to be aware of who is performing well and who is under performing and then maximising the activity of staff to increase profitability.

2. Keep tight control over work in progress by billing regularly. Too many businesses simply wait until an assignment is completed over a lengthy period before raising the issue of payment with their clients. This can have a detrimental impact on cash flow and could, in extreme situations, pose a more severe financial risk to the ongoing health of your business. Maintaining a regular flow of income from particularly lengthy projects is one way of easing the financial impact.

3. Keeping on top of debts is a simple but effective way of improving the financial position of a business. Monitor slow paying customers and take action where necessary. Whilst this may surprise some customers who have developed a habit of not paying their debts until they have grown a beard, it is a useful wake up call to notify them of terms and payment periods and to act upon this. A fee is a gift until the cash is in the bank and these days the old adage that cash is king has never been truer.

4. Talk to your bank to ensure that your facilities are at a sufficient level to cover any expected reduced monthly receipts. It is better to negotiate this is in advance than to get a letter or call informing you that your business has breached its credit facilities. Negotiating from a point of strength is always preferable than later discussions when you are experiencing problems. Notwithstanding that the banks overall are probably responsible for many businesses’ current problems, they have become much stricter in dealing with customers. Communicating a potential future issue is better done sooner rather than later.

5. Controlling spending is another key component in running a financially sound business. Obvious areas such as entertaining, marketing, and non-essential training and travelling can easily be reduced by simply monitoring what has happened in the past and placing restrictions on future spending. It is a simple measure but can save a remarkable amount of money.